Swing High/Low Part I

I define a swing high as;

A three bar combination

A bar preceded and succeeded by lower highs

I define a swing low as;

A three bar combination

A bar preceded and succeeded by higher lows

Swing Highs and Lows

The first thing that we need to recognise is what is a Swing High and Swing Low. This is probably the easiest part of price action and bar counting although the whole process gets easier with practice.

Market Phases

There are only three ways the market can go;

• Up
• Down
• Sideways

With the swing high/low definition now in mind we can start to build some layers on to the chart to identify these market phases and start to do a simple count of these swing highs and lows.

In short

• The market is going up when price is making higher highs and higher lows
• The market is going down when price is making lower highs and lower lows
• The market is going sideways when price is not making higher highs and higher lows OR lower highs lower lows

This may sound like child's play and a statement of the obvious but you will be surprised at how often people will forget these simple facts. One of the biggest questions I get asked is, which way is the market going? By doing a simple exercise you can see which way that price is going and decide on your trading plan and more importantly timing of a trade.

What do I mean by timing? It may be that you are looking for a shorting opportunity as the overall trend is down but price on your entry time frame is still going up (making HH's & HL's). There is, at this stage, no point in trying to short a rising market until price action start to point down (making LH's & LL's. More on this shortly).

Continue: Part II

Continue: Part III